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Business Sentiment Index reveals a cautious return to confidence for SMEs

Close Brothers Asset Finance’s Business Sentiment Index (BSI), which measures SME business confidence, has risen for the first time since September 2021 following three consecutive falls, and a low at the end of 2022. These were caused, in the main, by rising inflation, energy cost increases and higher interest rates.

Despite the headwinds still being faced by small and medium-sized firms and inflation stubbornly remaining in double digits, wholesale energy prices have fallen from their summer 2022 peaks, and there appears to be more certainty about where interest rates rises are headed, all of which is helping firms plan with more assurance.

This change in confidence is better understood when looking more closely at businesses’ priorities, which are achieving growth (28%) and managing costs (26%), well ahead of issues like paying down debts (9%) and business consolidation (9%).

Neil Davies (pictured), CEO of Close Brothers’ Commercial business, said: “After well over a year of declining confidence – according to our data – it’s encouraging to see an element of positivity returning to the market, no matter how tentative.

“What business owners want, almost more than anything, is an element of consistency, which gives them the ability to plan and forecast effectively. Many of the recent challenges have been entirely unexpected, and after the difficulties of the past few years, it’s impacted their ability to grow.

“But what it has again demonstrated is the continued resilience of the UK and Ireland’s SMEs, and we’re looking forward to working with them in the coming months and years.”

Contact us today to speak with a specialist Commercial Finance Broker to discuss how we can assist you.

Appetite for investment. Overall, the appetite to invest remains strong, as it was at the end of 2022, with three-quarters of UK firms looking to seek funding for investment in the next 12 months, up from 67% in July 2022.

This is reflected across all key sectors, with the most notable rise coming in transport & haulage, where the number of firms planning to seek funding has risen by 9% to 81% (from 72%), while manufacturing & engineering remained very strong at 83%; services saw a fall of 13%, from 76% to 63%.

Missed opportunities. The number of companies that have missed business opportunities because of a lack of available funding fell from 51% at the end of 2022 to 45% in May 2023.

While this is an improvement, these are historically ‘high’ figures – for example, in May 2022, 37% of respondents answered ‘yes’ to the question ‘have you missed a business opportunity in the last 12 months, due to lack of available finance?’.

It would appear businesses are concerned about impacting their cashflow by dipping into their reserves or taking out a standard loan and adding to their debt burden.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Economic outlook. Businesses continue to be more negative than positive about the macro-economic outlook but the gap between positive and negative sentiment narrowed significantly since the start of 2023.

That being said, this indicator that has contributed most to the decline in the overall BSI; for example, in November 2021 75% of respondents were positive about the economy – by December 2022 this had fallen to just 36%.

From a sector perspective, transport & haulage again saw the biggest swing towards the positive.

Predicted business performance. Predictions about future business performance remained stable, with the majority expecting their prospects to remain unchanged. Overall, fewer firms predict they will contract than earlier in the year (10% against 15%).

The most notable rise in positivity is the print and packaging sector, which saw an increase of 20% (19% to 39%) of firms expecting to expand.

Score calculation. The BSI is based on the views of 911 business owners and senior members of the UK’s business community and calculated from data charting their appetite for investment in their business in the coming 12 months; access to finance and whether they’ve missed a business opportunity through lack of available finance; views about the UK’s economic outlook; and thoughts on their likely performance in the coming 12 months.

By Lisa Laverick

Source: Asset Finance International

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Significant Rise in UK SMEs Borrowing Money Expected in 2023

The majority of UK SMEs (88%) plan to lean on business finance and credit this year according to new research carried out by solution-led fintech provider Nucleus Commercial Finance (NCF).

As the economic situation continues to challenge the outlook and stability of UK SMEs, it is revealed that only 12% of SMEs say they have no plans to borrow any money over the next 12 months – this rises to 29% when including sole traders and micro businesses. With interest rates still at record high levels, this is going to place a real financial burden on UK businesses.

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The expected borrowing is not, however, solely to patch holes. The reason most commonly cited by small and medium sized businesses is to enable them to seize growth opportunities (38%). More than a third stated that they plan to borrow in order to help employees with the rising cost of living (34%). A similar number said that borrowing would be driven by a determination to use it to make the business more environmentally sustainable.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division.

Rising costs and financial stress are still having an impact, however. A third (33%) of small and medium sized businesses expect to use business finance to cover unavoidable rising overheads, while one in five (20%) are likely to do so in order to pay off existing debt.

Source: Fintech Finance News

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How To Get A Business Loan

Whether you’re planning to expand your business with new premises or equipment or to invest in recruitment or marketing, you may be considering taking out a business loan.

To help you decide whether a business loan is the right finance option for you, here we take a look at what they are, what you’ll need to apply for one, and the alternatives, as well as answering some common questions about business loans.

What is a business loan?

A business loan is a form of borrowing for commercial businesses rather than individuals. Some may be more suitable for start-up businesses while others may only be suitable for businesses with a certain number of years of filed accounts.

You’ll usually repay the amount you borrow in monthly instalments over an agreed period of time, with interest on top. Typically, business loans are for amounts from around £1,000 up to potentially millions of pounds.

Are business loans secured?

Business loans can be secured or unsecured. A secured loan is one that is linked to an asset, such as property, vehicles or stock. This means that if you can’t make payments, the lender may take your asset to pay for the loan.

As there is less risk to the lender, secured loans are usually for higher amounts and interest rates are usually lower.

Unsecured loans don’t require an asset as security so tend to be for smaller sums and come with higher interest rates. Unsecured loans may be more suitable for small businesses without large assets.

Some lenders will ask for a personal guarantee from a company director for an unsecured loan.

What types of business loan are there?

Some of the most common types of business loans include:

Bank loan
With a bank business loan, you’ll borrow a set amount of cash from a bank or building society over an agreed period of time, with interest.

Government-backed Start Up Loan
This is an unsecured personal loan backed by the government to start or grow your business. To apply for this type of loan, you must live in the UK, be over the age of 18 and have (or plan to start) a UK-based business that’s been fully trading for less than 24 months.

Start Up Loans have a fixed interest rate of 6%, are for amounts of from £500 to £25,000, and you can repay the loan over a period of one to five years.

Short-term business loan
Short-term business loans are aimed at commercial organisations which want to borrow for a few months, rather than years, and don’t want to be tied into lengthy repayments. They can be over a period of weeks or months. However, they tend to charge higher interest rates than other loans so make sure you know what these are.

Peer-to-peer business loan
With a peer-to-peer loan (or a P2P), you’ll borrow money from private investors rather than a bank. You will usually be matched to these investors through an online platform. You may need to pay a fee to arrange the loan, so pay careful attention to any fees, charges and interest rates before committing.

Cash advance
A cash advance business loan (also known as merchant cash advance) allows you to borrow money against your business’ future credit or debit card sales. The amount you repay monthly will be based on a pre-agreed percentage of your card sales, so you’ll pay more when your business is doing well and less when it’s not.

Invoice finance
This is when a lender uses your unpaid invoices as security to lend to you. There are two main types of invoice financing:

Invoice factoring – you’ll be able to borrow a percentage of the value of your invoices and the lender will collect payment direct from your customers. The lender will then take its costs and you’ll be paid the remaining balance.
Invoice discounting – this allows you to borrow against the value of your invoices, but you’ll collect money from your customers and then pay your agreed fee.

Contact us today to speak with a specialist Commercial Finance Broker to discuss how we can assist you

How do you decide which type of business loan to apply for?

When considering taking out a business loan and deciding which type to apply for, you’ll need to think about:

  • how much money you want to borrow
  • which loans are suitable for your business type – some loans such as Start Up Loans are only suitable for new businesses, while cash advance business loans are only suitable for businesses that generate a certain amount of revenue via card payments
  • how much you can afford to pay back each month, taking the interest rate into account
  • the length of time you’d like to take the loan out for. While it may be tempting to take a loan out over a longer length of time, you may end up paying more overall in interest
  • comparing the fees and charges with each loan you are considering.

It’s important to compare your options and to shop around before committing to an option or lender, looking at the overall costs of borrowing.

Applying for a business loan

Before you apply for a business loan, you’ll need to be clear about:

  • the amount you’d like to borrow
  • what you are borrowing the money for
  • how much you can afford to repay each month
  • how long you’ll need to repay the loan.

As with other types of loans, your business’ credit rating is likely to be checked, with more competitive loan terms generally being offered for those with a good credit score.

Some ways to improve your business’ credit score include:

  • checking your credit report and disputing any errors
  • paying bills on time
  • if you’re a limited company, filing full, rather than abbreviated, accounts to Companies House
  • making sure you have enough money in your account to cover any planned payments
  • only applying for credit when you need it. Making lots of applications suggests you are struggling financially. You could ask for a quote instead
  • keeping all of your information, such as your business address, up-to-date. Notify suppliers, as well as Companies House, of any changes
  • avoiding county court judgements (CCJ) as these are recorded on your credit report.

You may also be asked for copies of your business accounts, bank statements, details of profits and loss, tax returns, a business plan and proof of address and IDs of company directors.

Once you have gathered your documentation and have decided on the type of business loan most suitable for you, you can shop around then apply.

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Comparing business loans

When comparing loans, some important elements to check are:

  • whether you are eligible for the loan you are considering. Always check the lender’s requirements carefully before applying
  • what the interest rates are for the loan and whether they are fixed or variable. It’s worth remembering that Representative APR means that the rate, or lower, is offered to at least 51% of applicants, so 49% of applicants will likely be offered a higher rate
  • whether your loan provider offers a repayment holiday (a few months off paying). However, taking a break from paying will mean that it will take you longer overall to pay off the loan and you’ll pay more in interest in the long run
  • whether there’s an early repayment charge on the loan.

Alternatives to business loans

If you don’t think that a business loan is for you, there are other options including:

  • Business credit cards – if you are looking to borrow smaller sums, a business credit card may be suitable. You may benefit from an interest-free period on your purchases. However, always pay your balance off each month to avoid paying interest charges or fees and check what the card’s annual fee and interest rates are after any 0% period.
  • Crowdfunding – this allows you to raise investment, often by pitching your business idea online, in exchange for rewards for the investors you attract. You could sell a stake of your business through equity crowdfunding or offer a reward such as free products or tickets through reward crowdfunding.
  • Overdrafts – your business account may have an overdraft which is either interest free or a low APR. This is usually only suitable for small amounts, though, and you’ll need to check the terms of your overdraft and stick to them.

By Cathy Toogood, Jo Groves

Source: Forbes

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SME-focused fund eyes potential after lending firms £2m

A fund backed by the Scottish Government specialising in loans to Scottish SMEs that have been turned down by larger lenders has so far lent £2 million, creating hundreds of jobs, it has been revealed today.

The Scottish Microfinance Fund (SMF) is managed and delivered by community development finance institution DSL Business Finance with additional support from the Start-up Loans Company and European Regional Development Fund.

It recently held a parliamentary reception at Holyrood to celebrate its first birthday, and has lent to more than 130 new and existing firms, helping create more than 200 jobs in the last year.

The fund has a dedicated £6m pot to lend SMEs up to £25,000, and is part of a larger £40m boost from the Scottish Government’s SME Holding Fund. Interest is 6 per cent a year, and it imposes no admin or early repayment fees, or hidden charges.

DSL executive director Stuart Yuill said: “We are approached by a huge variation of SMEs from all industries; from dental design studios and cafés to clothing and fashion companies.

“Taking the leap to start your own business is a daunting prospect for many entrepreneurs, especially in today’s economic and political climate, which is tough to adapt to. But there is huge potential for the SMF in 2018, and we’ve been heartened by the number of people we’ve been able to assist in Scotland… we’ve doubled our own team, with plans to recruit another loan officer for Edinburgh.”

SMF beneficiaries include Mike Stalker and Natalie King, founders of SK Dental Design Studio, who used its loan support to fully equip and fit out their studio as well as help with cashflow until the business becomes established. Stalker said: “We wouldn’t be here without the support of DSL and the SMF. We approached the banks for a loan, and they simply were not interested.”

The parliamentary reception was sponsored by Gail Ross MSP with a keynote address from economy secretary Keith Brown on the importance of continued business growth in Scotland. The fund aims to help tackle the much-cited issue of firms, particularly in Scotland, struggling to secure the funding required to achieve their scale-up goals. The inaugural Scottish Start-up Survey published last year found that 95 per cent of respondents said they needed extra capital to move their business forward, and seeing it as a bigger immediate concern than Brexit, for example.

Additionally, a study from Barclays published in November found that in 2016 the number of Scottish high-growth firms fell to 171 from the previous year. However, UK Chancellor Philip Hammond the same month unveiled in the Autumn Budget £2.5 billion for the British Business Bank, to support UK smaller firms looking to scale up and realise their potential.

Source: Scotsman

 

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Finance a vital resource as billing delays hit building industry

Businesses in the UK construction sector have been hit by a leap in payment delays, with invoices taking an average of 69 days to be settled.

Analysis of more than 13,000 companies by Funding Options, the online business finance supermarket, shows that delays have risen 8% in the past two years.

It warns that a single late payment can be an issue even for successful firms, which can be caught out if a major client delays a payment significantly. If that late payment coincides with a major bill coming in, such as a tax, VAT or rent payment, the consequences can be severe.

Furthermore, the construction sector has a long supply chain which includes many small and medium-sized enterprises and delayed payments could create a domino effect that impacts hundreds of small suppliers.

Slow payment of bills is a major reason why the construction sector has such a high number of insolvencies; 2,557 construction firms entered insolvency during 2016.

Conrad Ford, CEO of Funding Options, said: “What this data again underlines is that the construction sector has a persistent problem getting clients to pay early on.

“Long supply chains in industries like construction mean that the ripple effect of delays is likely to affect many other businesses further down, with SMEs hit the hardest. In an industry with high overheads in terms of materials and labour costs, this can be difficult to deal with.

“These figures show that it’s more important than ever that the construction sector fully understand the options available to them to free up the funds they require and to minimise the impact of late payment and other poor payment practices.”

Choices available to manage cash flow range from invoice finance and asset finance to crowdfunding and peer-to-peer lending.

Ford added: “Unfortunately, small businesses leaders often don’t know which sort of finance is the best fit for a particular need, or who is out there to provide it.”

Funding Options as a UK online marketplace for business finance, raising tens of millions of pounds for SME finance each year.

It works with dozens of lenders across the alternative business funding spectrum, from challenger banks to invoice finance, hire purchase, leasing, peer-to-peer lending and property funding.

Funding Options has been designated by HM Treasury and the British Business Bank for the bank referral scheme, to help UK SMEs find alternative finance when they are unsuccessful with the major banks.

Average wait in days for invoice payment in construction sector

Finance a vital resource as billing delays hit building industry Commercial Finance Network

Source: Funding Options